Herzog Industries sells  two electrical components with the following characteristics. Fixed costs for the company are $200,000  per year.

Required

a. How many units of each product must Herzog Industries sell in order to break even?

b. Herzog’s vice president of sales has determined that due to market changes, the sales price of component XL-709 can be increased to $25.00 with no impact on sales volume. What will be Herzog’s  new breakeven point in units?

c. Returning to the original information, Herzog’s vice president of marketing believes that spending $58,500 on a new advertising campaign will increase sales of component CD-918 to 90,000 units without affecting the sales of product XL-709. How many units of each product must Herzog sell to  break even under this new scenario?

d. The market changes referred to in part (b) indicate additional overall demand for component  XL-709. Herzog’s vice president of marketing believes that if the company spends $58,500 to advertise component XL-709 rather than CD-918, as planned in part (c), the company will be able to sell  a total of 50,000 units of XL-709 at the new price of $25.00. If the company must choose to advertise  only one component, which component should receive the additional $58,500 in advertising?

Transcribed Image Text:

XL-709 CD-918 Sales price $15.00 $38.00 Variable cost 10.00 24.00 Sales volume 30,000 units 75,000 units